Monday, March 15, 2010

Evolving Colonial Formosa Again

Idle speculation: I was reading the speculative articles on the Brobdingnagian engineering project of running a vehicle tunnel under the Taiwan Strait to connect Taiwan with China. This got me thinking about water: anyone ever thought that Taiwan, with its massive water surplus (80% of the water that falls on the island runs back to the ocean) is an ideal place for a water deficit nation like China to grab? Maybe you never did, but I'd bet dollars that the CCP brain trust has. In contrast to a vehicle tunnel, running a large water pipe under the Strait is a simple and strai(gh)tforward engineering problem.

Reuters published an unintentionally humorous interview with KMT Secretary-General King Pu-tsung, Ma's hatchet man, known as "little knife". The Reuters reporter who did the interview, Ralph Jennings, is on the ground in Taipei and had no trouble identifying the problem locals have with Ma's policies (unlike some):
The KMT and DPP will face off in tense local elections at the end of this year that are seen as a bellwether for the 2012 presidential race. The KMT has already lost seats in recent by-elections on voter concerns over its pro-China policy.
King comically assured all readers that everything was going to be peachy-keen:
"ECFA can be a turning a point. Wen Jiabao said he's going to yield benefits to Taiwan, so how can you say the deal would sell out Taiwan?" King said.
Wen Jiabao said it, I believe it. Everyone knows that China's leaders are inveterate truth tellers.

There's been quite a few pixels expended in debating the effects of ECFA on Taiwan industries, but less of a focus on the way Taiwan, as a Liberty Times commentator noted a couple of weeks ago, is becoming a de facto colonial holding of China: as its industries are sucked into China's maw, the island is gearing up to supply plastics for processing, steel, and other basic industrial materials. China is not only de-industrializing the island; it is returning it back to the 1930s when Japanese planners envisioned Taiwan as a place that would provide basic industrial and agricultural inputs like rice, timber, camphor, and sugar. Former Taiwan rep and international trade specialist Benjamin Lu pointed this out in a Taipei Times interview:
“I certainly don’t believe that the proposed ECFA will provide any opportunity for Taiwan to increase its exports to the PRC [People’s Republic of China],” he said. “The reason is that what we can manufacture in Taiwan can be manufactured in mainland China at a much cheaper price. We have no competitive edge at all, even with the concession of a tariff provided by ECFA, if there is any. There is a slight chance for Taiwan to export more tropical fruit to mainland China and some semi-finished products.”
We have already seen this reversion in Mailiao, where new petrochemical and steel plants, running on state-subsidized water (supplied by a hugely destructive dam in the mountains above it), will supply the Chinese market, but another complex is going in Changhua which will borrow water and hurt a wetland (Chinese). Not just waterfowl are suffering: the Formosa Plastics coal-fired power plant at Mailiao is the fifth largest single human source of CO2 on earth. Going in Changhua is the Changgong Power Plant, another coal-eating monster that when completed will edge out the Mailiao plant to become number four. The plant is being built to serve Changbin Industrial Park, slated for completion this year, on the coast north of Lukang. This entirely retrograde industrial movement, for the sake of China, is punishing Taiwan's dwindling natural resources and warming the earth. Our industrial structure is not the only thing being shaped by increased contact with China.

Taiwan News argues in another hard hitting editorial that the title of the cross-strait economic agreements constitutes an acceptance of domestic status vis-a-vis China, in contrast to Ma's promises that ECFA will not impinge on the island's sovereignty. To wit:
After all, a cursory review of trade agreements between Beijing and other countries indicates that the PRC is meticulous in ensuring proper "protocol" and insisting on the use of formal titles. The innumerable examples include the "Framework Agreement on Comprehensive Economic Co-Operation Between the Association of Southeast Asian Nations and the People's Republic of China" signed on November 4, 2002.

The only exceptions appear to be pacts between Beijing and the subordinate "special administrative regions" of the former British colony of Hong Kong and the former Portugese colony of Macau.

In both of the "closer economic partnership agreements" (CEPA) signed with the Hong Kong Special Administrative Region (HKSAR) and the Macao SAR on June 29, 2003 and October 18, 2003, respectively, Beijing refrained from using its formal status and instead used the term "Mainland" (literally "neidi" or "inside territory" instead of the usual "dalu") and the geographical phrases "Hong Kong" and "Macau."

Through footnotes, the preambles of both CEPA pacts also explicitly define "the Mainland" as referring to "the entire People's Republic of China," which includes the two SARs.

The "cross-strait economic cooperation framework agreement" title apparently agreed upon by the KMT and the PRC's ruling Chinese Communist Party departs from international protocol and is also by no means "ambigous." Instead, its use constitutes direct evidence of acceptance of a "domestic" status within the PRC parallel to that of the Hong Kong and Macau "special administrative regions."

Hence, the refusal of the Ma government to insist, at the very least, that the formal WTO titles of both parties be used in the title and body of the ECFA constitutes a profoundly "political" concession of our international legal status as a state or "economic legal entity" and has troubling implications for Taiwan's sovereignty and economic autonomy and horizons.
For Beijing, ECFA is about annexing Taiwan. D'oh. James Wang commented in the Taipei Times on ECFA, saying it is pretty clear what Beijing wants:
Once Taiwan buys into the “one China” principle, Beijing will be taking a mile for every inch given to it and say “thank you very much.” It will be reaping its “early harvest,” alright: a present of Taiwan’s sovereignty. It may even well mete out its concessions and remove the odd missile or two, orchestrating a “warming” of the Taiwan Strait situation and pushing for “peace talks.” This would, in turn, make all the more plausible China’s case to the US that there is no real need to sell arms to Taiwan.
All you can say is BINGO. Meanwhile government officials continue to insist ECFA will be signed in the very near future. Please note the government's constantly shifting rationale for it -- remember when we had to have ECFA IMMEDIATELY to save the economy? Oh yeah, two years have passed with no ECFA, but we have recovery already now with the links to the China market we already had under the DPP. Then it was to prevent marginalization by the ASEAN FTAs -- which have turned out to be not so great for those trading with China. Note also that the announcement is from V-P Vincent Siew: remember when he was the amazing technocrat that Ma promised to make Czar of All Economies in Taiwan? Yea, verily, it was the bright spring of our naivete.

In other ECFA news, AFP reports that Taiwan's financial industry wants to be able to take a 30% stake in Chinese banks.
The government hopes such a move would let any individual Taiwanese bank to buy up 30 percent of any Chinese lender, as opposed to the current 20 percent ceiling China imposes of foreign investors, the Commercial Times said.

It said Taiwan also hopes its banks will be allowed to open branches as soon as they enter the mainland market, instead of having following the prerequisite that foreign banks have to first open representative offices for two years.
As I have been saying, the main beneficiary of ECFA is going to be the financial sector; local manufacturing industries are going to be decimated. Will China really let Taiwan take out stakes in its financial sector? That isn't how China works.

Businessweek offered another China Pessimism article: biggest bubble in history. Because China is so opaque, it is hard to make judgments about what kind of handle the government has on the problem. Yet, if you recall famous Taiwan scandals that occurred in the credit sector during the martial law era, such as the massive Tsai family conglomerate collapse, one might argue that the authorities in authoritarian states show a marked reluctance to put a stop to things once the size of the problem grows. Hence that chilly feeling between the shoulder blades when one contemplates China's bubble -- you know that bubble economy that Ma desperately wants Taiwan to graft itself onto. Wouldn't it be ironic if ECFA came online just as China's growth went ka-boom!

Idle speculation: is the desire to annex Taiwan a factor in keeping China's yuan down? The material basis for Taiwan's independence is its vibrant industrial base, which will undoubtedly be stimulated by a rise in the yuan, both in terms of rising demand for exports when the currency appreciates, and because as the cost of manufacturing rises, firms will move out (and back to Taiwan).
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Unknown said...

My experience, whether under Martin's Liberal government, or under Harper's Conservative one, has always been that the Canadian border/customs people are much stricter than the American ones. The stereotype that Americans have of Canadian border security is ill-informed and usually incorrect (maybe there are borders that are porous, but not the more widely-travelled ones. And the Canadian customs people are not always friendly; they're frequently a-holish.

Tommy said...

All of your comments are interesting. While I totally agree about your ECFA conclusions. Two others, namely those dealing with idle speculation, seem a bit problematic.

First of all, while it is true that Taiwan gets a lot of rain, rainwater itself is not practical to harness because it is not predictable. The rivers may gush during a typhoon and fall greatly a week later. Additionally, most of China's water problems are in the North and the West. The South still usually gets plenty of water. Hence the need for the S-N Water Diversion Project. Running a pipe from Taiwan to Fujian would be easy. But the Fujianese are not the ones who need the water. The water would have to be piped across China. This raises many of the same technical problems that the diversion projects under construction already have.

As for your question about the value of the yuan, I think that Taiwan plays no more of a role than other trade partners do. China's exporters are currently in a fix. While it is true that exports are recovering slowly, the margins of factories, which were already thin before the economy turned sour, are just getting thinner. The yuan is not the main culprit. Inflation is raising prices while factory workers are no longer going to the main export processing areas in droves. There is a huge labor shortage in Guangdong right now. This means that salaries will rise.

Taiwan is not the main issue here because a rise in the RMB would push many factories over the edge, causing a notable increase in prices. Foreign manufacturers were already beginning to look at other markets pre-crisis. Beijing knows that they could leave in droves.

The point is that while this might indeed have the effect of making China less attractive for Taiwanese businesses, Taiwan is only a small piece in a much larger RMB problem.

As for the ECFA, did you notice the change in Wu's stance on public support? 60 percent support is no longer needed. Now a simple majority of Taiwanese will suffice. I hope that the comments by Tkacic, Lee Teng-hui and Benjamin Lu will hit home with some locals. I do particularly like how Lu called out the presidential office on its ridiculous and condescending claim that it could send someone to educate Lee on the pact. Good for him!

Michael Turton said...

No, did NOT catch that change in the level of public support needed. Nice. Have you a link?

Shanghai is already designated a water shortage city, man. The problem is that while there is water, a lot of it is thoroughly polluted. It was just speculation, something to make you think, which you did, for which I am thankful.

Anonymous said...

"I still have warm fuzzies for Canada and find this a bit incredible."

Are you kidding? A couple of years ago, someone was actually tasered to death while trying to enter Canada at Vanouver International Airport.

Anonymous said...

The Forbes article states: "Stocks in Taiwan have been rallying this year in part on hopes that the two sides will conclude an agreement that would improve the island's competitiveness with mainland China by lowering tariffs on exports, and eventually lead to more mainland Chinese investment in Taiwan."

I always assumed this was due to the end of the deep global recession that sent world economies plummeting. Now Taiwan's economy is recovering to normal levels along with the rest of the world.

Tommy said...

I do have a link:

The money quote: "While Premier Wu Den-yih (吳敦義) has set the goal of 60 percent public support as a requirement to sign the ECFA, Shih said the government would 'proceed if a majority of the people were in favor of it.'"

It seems that, due to a foggy memory, I misspoke. It was not Wu who altered his policy himself. It was the the Minister of Economic Affairs. Nevertheless, the grave is in the process of being dug for the 60 percent public opinion threshold. As Shih is part of the Cabinet, and Wu is the Cabinet Daddy, I think it is fair to say that we may be hearing more about this simple majority in the future.

Tommy said...

Oh, and you will be very interested in this story. The water issue just happened to be on my mind thanks to this excellently researched piece in the WSJ:

Tommy said...

Ack! It is the WaPo. But you got that.

Anonymous said...

American customs agents can be real pieces of shit, especially to Taiwanese women traveling alone on visitor visas, and especially at smaller airports (avoid Portland, Oregon, at all costs). And there is not a damned thing you can do about it. Some high school graduate who could not find Taiwan on a map is given the authority refuse entry on no grounds at all. Depressing to see that Canada is just as bad.

channing said...

Anon: "Now Taiwan's economy is recovering to normal levels along with the rest of the world."

You mean the rest of the world, except for the US.

Speaking of Wen Jiabao, I used to think he was a genuinely soft, gentle guy required to toe the party line, but now I think he's just a slow speaker....required to toe the party line.

Anonymous said...

So, now its also bad if Taiwan makes steel or plastic to sell to China?

Making steel and plastic requires lots of capital and not too much labor.

Screwing screws into a plastic housing requires more labor than capital.

The fact that Taiwan has less screwdriver work and more chemical engineering work would seem to be a good thing and normal.

In any case, the people who invest millions into these plants probably think they can make money in Taiwan while the people who close up their lap top assembly shop know they cannot make money, no matter how much the all knowing wise planners in the blogosphere figure.

I also bet the ChiCom leaders follow things on a much more Macro level - they don't need to dirty themselves that much to get their cut.

Anonymous said...

Canadian customs can be bad, just like any others. You don't think Taiwan customs hassles southeast asians? I am sure they do on occasion.

I have also seen a US customs hassle a taiwanese at the same time they were hassling a beautiful blonde Austrian woman.

I think being a-holes is part of the job regardless of country.

Michael Turton said...

In any case, the people who invest millions into these plants probably think they can make money in Taiwan while the people who close up their lap top assembly shop know they cannot make money, no matter how much the all knowing wise planners in the blogosphere figure.

Hahahahahahahaha. No really. Hahahahahahahahahahaha. Did you read the post at all.

I love my commenters. Without them, what would I do for amusement.

Dixteel said...

Yea, my impression of Canadian custom is not very good neither, contrary to people's impression that Canada is friendly. I even saw a Canadian custom agent yelling at a traveler. And this happens before Vancouver Olympics...good way of welcoming people eh. I know I am going to get flamed by Canadian, but I just want to tell their custom agents: "hey guys, chill out, just because people brought something that you are going to confiscate, it does not mean you can yell at them. Plus, they are going to pay you some penalty money and give you those strange foreign food, so at least you assholes can show some courtesy and smile."